The largest food manufacturer in Australia has promised shareholders that it will shape up. But what exactly does that mean for Goodman Fielder and its subsidiaries? And is investor excitement prompted by the radical restructuring plans, the inspirational leadership or the rumours of a possible takeover?’s David Robertson finds out more.

Australia’s largest food manufacturer, Goodman Fielder, is undergoing a major restructure in order to improve its languishing performance. The company has long been seen as a sleeping giant on the Australian stockmarket but with the arrival of a new chief executive, Tom Park from Southcorp, the company is promising a revolution that will leave it leaner and in better shape to provide good returns to shareholders.

Goodman Fielder currently posts annual sales of about A$3bn (US$1.5bn), making it nearly twice as big as its nearest rival GWF and three times as big as Unilever’s Australian arm. With a brand portfolio that includes Uncle Toby’s, the company has more than a 50% market share in many segments including packaged breads (50%), nutritious snacks (50%), pastry (65%) and cake mixes (52%).

In the last year, however, Goodman Fielder’s share price has languished at a little over A$1 (US$0.52), as investors responded to profit warnings in 2000 and 2001. Recent weeks have seen shareholders encouraged by Park’s strategies and last week the share price rocketed to a two and a half year high of A$1.54, before falling back when US regulators blocked the A$310m sale of the company’s gelatin business Leiner Davis to Germany’s DGF Stoess.

Presentation hopes

Park gave a presentation to institutional investors on 21 January in which he outlined his hopes for the company and since then the share price has again risen over the A$1.5 mark. In the presentation Park told investors: “Goodman Fielder has good people, a strong market position and great brands”.

“Much work has been done to restrustructure Goodman Fielder,” he added: “However, there is still too much complexity and cost in the business. We have a clear strategy and a straightforward earnings model that will improve shareholder returns.

 “There has been widespread restructuring in recent years with modest improvements in margins. However earnings are not consistent and the restructuring has also involved big abnormals [costs] and inadequate returns to shareholders.”

Management reshuffle

As part of the reorganisation of Goodman Fielder a new management team is in place, and former CEO David Hearn and COO Doug McKay have stepped aside – although there has been some disappointment in the A$3m payoff Hearn received last year as well as the seven million share options he was allowed to keep.

Goodman Fielder is also getting rid of its subsidiaries in order to concentrate on its core food brands. As early as August 2000, the company sold Starch to Penford for A$100m. Germantown was then sold to Danisco in August 2001 for A$193m.

The hold up in the sale of the gelatin business was a disappointment to Park. The US Federal Trade Commission had said the deal was unappropriate because it “would eliminate strong, head to head competition between DGF Stoess [the buyer] and Leiner Davis, and the two firms combined would account for more than 50% of the US market for pigskin and beef-hide gelatin”.

The company remains committed to finding a buyer for the US business, however, and Goodman Fielder is now working on ways to make the deal attractive to the regulator. It is also thought that it could sell Leiner Davis to another party – perhaps Danisco, or the Japanese company Nitta.

Buyback delayed

The delay in the gelatin sale has meant that Goodman Fielder may be forced to delay another aspect of its program to regain shareholder interest – its $200m buyback of about 10% of its shares. The buyback was to be done in two parts of A$100m each, but the funds generated by the gelatin sale are needed to complete the second buyback. The company remains committed to the buyback proposal but investors do not seem too concerned as yet, and analysts seem to consider it more worthwhile to wait for a good price for Leiner Davis rather than push for an early start to the second buyback.

Goodman Fielder is also reviewing its milling business as another possible divestment and is building on the success of its core brands, like Uncle Toby’s, with further products carrying that name – like the new Uncle Toby’s Break Free snacks and Flakes Plus cereal.

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The Market for Packaged Food in Australia
Packaged food data and analysis covering market structures, trends, competition, levels of development and future potential. This also provides retail sales and market share statistics.


Takeover speculation?

While all this proactive activity on the company’s part helps explain why money-men are beginning to see Goodman Fielder as an attractive investment again there are also rumours that interest is being fuelled by a possible takeover bid.

Cash-rich from the several divestments, the company is talked of as a target for venture capitalists like Pacific Equity Partners – a company that is about to receive a windfall from the sale of New Zealand drinks company Frucor to French giant Danone. Pacific Equity proposed a leveraged buyout of Goodman Fielder last March and is considered a likely candidate if the company was to be put up for sale, but so far nobody is expressing an intention to do so.

By David Robertson, correspondent